Summary of the Advocate General's Opinion in Huawei v. ZTE

As I noted this morning, Advocate General Wathelet's opinion in the Huawei v. ZTE dispute pending before the Court of Justice for the European Union is now available for download (including, as of just a little while ago, in English) here.  The English-language version of the questions referred to the CJEU are as follows:

1. Does the proprietor of a standard-essential patent who informs a standardisation body that he is willing to grant any third party a licence on fair, reasonable and non-discriminatory terms abuse his dominant market position if he brings an action for an injunction against a patent infringer although the infringer has declared that he is willing to negotiate concerning such a licence?

or

is an abuse of the dominant market position to be presumed only where the infringer has submitted to the proprietor of a standard-essential patent an acceptable, unconditional offer to conclude a licensing agreement which the patentee cannot refuse without unfairly impeding the infringer or breaching the prohibition of discrimination, and the infringer fulfils his contractual obligations for acts of use already performed in anticipation of the licence to be granted?

2. If abuse of a dominant market position is already to be presumed as a consequence of the infringer’s willingness to negotiate:

Does Article 102 TFEU lay down particular qualitative and/or time requirements in relation to the willingness to negotiate? In particular, can willingness to negotiate be presumed where the patent infringer has merely stated (orally) in a general way that that he is prepared to enter into negotiations, or must the infringer already have entered into negotiations by, for example, submitting specific conditions upon which he is prepared to conclude a licensing agreement?

3. If the submission of an acceptable, unconditional offer to conclude a licensing agreement is a prerequisite for abuse of a dominant market position:

Does Article 102 TFEU lay down particular qualitative and/or time requirements in relation to that offer? Must the offer contain all the provisions which are normally included in licensing agreements in the field of technology in question? In particular, may the offer be made subject to the condition that the standard-essential patent is actually used and/or is shown to be valid?

4. If the fulfilment of the infringer’s obligations arising from the licence that is to be granted is a prerequisite for the abuse of a dominant market position:

Does Article 102 TFEU lay down particular requirements with regard to those acts of fulfilment? Is the infringer particularly required to render an account for past acts of use and/or to pay royalties? May an obligation to pay royalties be discharged, if necessary, by depositing a security?

5. Do the conditions under which the abuse of a dominant position by the proprietor of a standard-essential patent is to be presumed apply also to an action on the ground of other claims (for rendering of accounts, recall of products, damages) arising from a patent infringement?

Here's my summary of the opinion, mostly based on my reading of the German version.  (The original language is French, which I didn't realize until I'd almost finished reading the German version, or else I would have read it in French.  Oh well.  In any event, I checked what I had written on the basis of the German version and have made a few small changes and additions based on the English-language version, which only came to my attention about two hours ago.)

1. The German Orange-Book-Standard case and the European Commission's approach to FRAND-encumbered SEPs as stated in its press release in the Samsung investigation present two conflicting approaches to the question of when European competition law prevents the owner of an SEP from seeking injunctive relief.  The AG believes that the Orange-Book-Standard approach is not directly relevant to the present case, however, because that case involved a de facto standard, rather than a standard adopted by an SSO (paras. 48-49).  At the same time, under the EC's approach the SEP owner cannot be denied an injunction simply because the accused infringer has made an utterly vague and nonbinding statement that it is prepared to enter into a license (para. 50).  Simply applying either approach to the present case would result in two much or too little protection accruing to the SEP owner, the user or the infringer (para. 51).

2.  The AG will proceed on the assumption that Huawei's patent confers upon Huawei a dominant position, because the questions presented rest upon this assumption, and therefore the issue of Huawei's dominance is not properly before the CJEU.  But the AG is of the view that national courts should not simply presume that SEPs confer dominance, rather they should consider the evidence (paras. 53-58).

3.  The questions presented require a weighing of, on the one hand, the right to intellectual property and the right of access to the courts (on the part of Huawei) and ZTE's freedom to conduct business, which could be compromised by the issuing of an injunction (para. 59).  The AG is of the opinion that merely seeking an injunction is not, by itself, an abuse of dominant position.  Rather, injunctions are an essential means for patent owners to assert their rights to IP (para. 61).  It therefore follows that any constraint on the right to seek an injunction inevitably constitutes an enhanced constraint on IP and thus may be permitted only under exceptional and very specific circumstances (para. 62).  At the same time, the right to IP is not an unconstrained right (citing recital 12 and article 12 of the 2004 EC Enforcement Directive) (para. 63).  The AG's view is that where the accused infringer is technologically dependent on the patent and is objectively ready, willing and able to conclude a license on FRAND terms, and where the patent owner conducts itself in an unfair or unreasonable manner against the infringer, the act of seeking an injunction can be an abuse of dominant position (para. 74).       

4. In answer to the first question, then, as long as the patent infringer is ready to conclude a license and to comply with it, especially with respect to paying a reasonable royalty, the SEP owner must before commencing an action for an injunction undertake certain concrete steps in order to respect its FRAND commitment and especially its special responsibility under article 102 of the TFEU.  This is all the more necessary when it is not certain that the infringer necessarily knows that it is using the teaching of a valid SEP.  The AG notes that for the LTE-Standard at issue here there are more than 4,700 declared patents, and that a substantial number of them are believed to be neither valid nor essential (paras. 80-81).  Therefore, it is not unreasonable to negotiate and conclude licenses for FRAND-encumbered SEPs ex post, that is, after commencing use of them (para. 82). 

What therefore must the SEP owner do before commencing an infringement action, in order to avoid an abuse of dominant position?  First, the accused infringer (to the extent it is not evident that is already so informed) must be informed in writing what the relevant patent is how it is infringed (paras. 83-84).  In addition, the SEP owner must present to the accused infringer a written offer of FRAND terms, which must contain all of the terms normally found in a license in the relevant industry, especially the amount of the particular royalty and the manner in which it is to be calculated (para. 85).         

What must the alleged infringer do?  It must consider the offer carefully and seriously.  If it doesn't accept the license, it should present to the owner within a short period of time a reasonable written counteroffer, pointing out the terms with which it disagrees.   But if the accused infringer is acting in a purely strategic and/or hesitant and/or insincere manner, it is not an abuse for the SEP owner to commence an action for an injunction (paras. 87-88). 

The AG is also of the view that the accused infringer should be able to reserve the right to challenge infringement and validity, because otherwise an invalid patent may go unchallenged or the defendant wind up paying for a patent it is not infringing (paras. 94-96).

5.  In light of the above, the AG did not find it necessary to answer the second and third questions (para. 97).

6.  On the fourth question, the AG believes that the posting of a bank guaranty for the payment of royalties or lodging interim payments in an escrow account for the past and future use of the patents may be demanded by the patent owner (para. 98).

7.  On the fifth question, because a recall or removal of allegedy infringing goods may have the same impact as an injunction, these remedies as well should be subject to the rules set out above.  However, there is nothing wrong with the patent owner seeking a rendering of accounts, by which the owner can determine the amount of the defendant's use, as long as the measures are reasonable and proportionate.  Similarly, an action for damages for past use does not pose a problem (paras. 100-02).

Finally, I'll conclude by quoting the English-language version of the conclusion (para. 103), which is more definitive than the brief summary of it that I posted earlier this morning:

103.   In the light of the foregoing considerations, I propose that the Court should reply as follows to the questions referred for a preliminary ruling by the Landgericht Düsseldorf:

1)

The fact that a holder of a standard-essential patent (SEP) which has given a commitment to a standardisation body to grant third parties a licence on FRAND (Fair, Reasonable and Non-Discriminatory) terms makes a request for corrective measures or brings an action for a prohibitory injunction against an infringer, in accordance with Article 10 and Article 11, respectively, of Directive 2004/48/EC of the European Parliament and of the Council of 29 April 2004 on the enforcement of intellectual property rights, which may lead to the exclusion from the markets covered by the standard of the products and services supplied by the infringer of an SEP, constitutes an abuse of its dominant position under Article 102 TFEU where it is shown that the SEP-holder has not honoured its commitment even though the infringer has shown itself to be objectively ready, willing and able to conclude such a licensing agreement.

2)

Compliance with that commitment means that, prior to seeking corrective measures or bringing an action for a prohibitory injunction, the SEP-holder, if it is not to be deemed to be abusing its dominant position, must — unless it has been established that the alleged infringer is fully aware of the infringement — alert the alleged infringer to that fact in writing, giving reasons, and specifying the SEP concerned and the manner in which it has been infringed by the infringer. The SEP-holder must, in any event, present to the alleged infringer a written offer of a licence on FRAND terms which contains all the terms normally included in a licence in the sector in question, in particular the precise amount of the royalty and the way in which that amount is calculated.

3)

The infringer must respond to that offer in a diligent and serious manner. If it does not accept the SEP-holder’s offer, it must promptly present to the latter, in writing, a reasonable counter-offer relating to the clauses with which it disagrees. The making of a request for corrective measures or the bringing of an action for a prohibitory injunction does not constitute an abuse of a dominant position if the infringer’s conduct is purely tactical and/or dilatory and/or not serious.

4)

If negotiations are not commenced or are unsuccessful, the conduct of the alleged infringer cannot be regarded as dilatory or as not serious if it requests that FRAND terms be fixed either by a court or by an arbitration tribunal. In that event, it is legitimate for the SEP-holder to ask the infringer either to provide a bank guarantee for the payment of royalties or to deposit a provisional sum at the court or arbitration tribunal in respect of its past and future use of the patent.

5)

Nor can an infringer’s conduct be regarded as dilatory or as not serious during the negotiations for a FRAND licence if it reserves the right, after concluding an agreement for such a licence, to challenge before a court or arbitration tribunal the validity of that patent, its supposed use of the teaching of the patent and the essential nature of the SEP in question.

6)

The fact that the SEP-holder takes legal action to secure the rendering of accounts does not constitute an abuse of a dominant position. It is for the national court in question to ensure that the measure is reasonable and proportionate.

7)

The fact that the SEP-holder brings a claim for damages for past acts of use for the sole purpose of obtaining compensation for previous infringements of its patent does not constitute an abuse of a dominant position.